Many investors choose to purchase property in the UK, and it’s easy to see why. There is a huge demand for high quality accommodation as the country struggles to construct enough property to satisfy the market. In 2019 alone, 300,000 new properties were needed, but there was a nationwide shortfall of 130,000.
While property investments can create a healthy stream of revenue, buying a property through a limited company can potentially help maximise your returns even further. Before 2017, the amount of investors purchasing through a company was minimal, but changes to tax relief has seen the numbers grow substantially.
Working with our friends at GetGround, we have put together this comprehensive article, explaining how purchasing through a limited company will benefit you, how the process works, and the key considerations you need to keep in mind.
What are the Benefits of Buying a Property Through a Limited Company?
One of main advantages you’ll see is the significant tax benefits. If you own a property in your own name, the profit you make will be considered personal earnings, and you will have to pay Income tax.
However, properties in the name of a limited company will be subject to Corporation tax instead. The rate of Corporation tax is approximately half of the higher rate of Income tax, meaning there is potential to make a significant saving.
If the property is held by a company, you will also be able to deduct the mortgage interest from your tax bill, which can save you a large sum of money.
Property held in a limited company name also gives you more options when planning for Inheritance tax, as giving away shares in your company allows for greater flexibility.
For example, there is a mechanic where you can gift value to another individual, and Inheritance tax liability will reduce to 0% after seven years. With shares, you can:
- Slowly gift value away every year
- Provide financial gifts to beneficiaries while still retaining control of the asset
Limited Personal Liability
All companies set up by GetGround are private limited companies incorporated in England and Wales. This means your business assets and your personal assets are separate from one another. As such, you won’t be subject to personal liability if your property investments run into difficulties.
Your personal assets will be protected by the “corporate veil,” meaning debts, losses and legal claims are the responsibility of the company and not the individual shareholders.
Easily Buy and Sell With Others
GetGround can set up your limited company to allow a maximum of eight shareholders, making it simple to gift value to multiple beneficiaries.
You can also buy and sell shares without having to pay Stamp Duty Land Tax and without having to instruct conveyancing solicitors. With GetGround’s services, you can transfer shares to your beneficiaries in one day. By comparison, property conveyancing normally takes between six and eight weeks.
If you decide to sell your property, you will also benefit from lower Capital Gains tax. Through personal ownership, you would have to pay either 18% or 28% subject to the sale price. With a limited company, you would pay either 10% or 20% for the sale of the shares.
How Does Buying Property Through a Limited Company Work?
It’s a misconception that buying a property through a limited company is time-consuming. The whole process can be finished in as little as 30 minutes, and everything can be done online. Here are the steps involved:
- You choose a buy-to-let property to purchase, and GetGround will set up a company for you to purchase it with. This will include providing all the legal documents and structuring the company with the optimal mix of share capital and owner loans.
- You will receive your company bank account with a UK sort code and account number. You should use this account to purchase the property, and to handle rental income and ongoing expenses.
- That’s all you need to do. The bookkeeping, accounting, tax returns, registered office and secretarial services will all be handled for you.
While it is possible to purchase a property through a limited company at the post-exchange and completion stages, it does become more of a challenge due to additional legal fees, Stamp Duty Land Tax and Capital Gains Tax. This is why GetGround recommends making your purchase through a company at the pre-exchange stage.
Is Buying a Property Through a Limited Company Right For Me?
While there are plenty of benefits to purchasing a property through a limited company, it’s not for everyone, and you should talk through your options with a professional advisor, such as Treo Investments, first.
There is the matter of how you retrieve your money. If you want to reinvest your profits to add to your portfolio, you may find buying through a limited company is the right option.
However, if you prefer to buy and sell your properties as a trader as opposed to being an investor, you could end up paying more Capital Gains Tax from each property you sell.
Helping You Make the Right Decision
We pride ourselves on transparency, and we will always make sure that buying a property through a limited company is right for you before we suggest it.
We understand there are many variables that need to be taken into consideration first, so if you have any questions, you can contact the Treo Investments team for honest and impartial advice.
For more details on buying a property through a limited company, make sure to visit GetGround’s Learning Center where you will find FAQs, downloadable guides and educational videos.
*Treo Investments would like to thank our friends at GetGround for their assistance with this article. GetGround specialise in setting up and running UK Limited companies to purchase UK buy-to-let properties. All companies have high quality legal documents, and are designed to be tax efficient and work with mortgage lenders.